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Builders expect a rush of first-home buyers planning to build new houses following the Reserve Bank's announcement they will be exempt from new mortgage lending rules.

Two months after the limits were introduced, the bank said yesterday it would exempt new home building from them after consulting groups such as the Registered Master Builders Federation and the banks.

The building association said that the rules, which restrict lending to borrowers with less than a 20 per cent deposit to 10 per cent of a bank's total, had resulted in cancelled orders for new homes and a 30 per cent drop-off in inquiries.

The change is likely to push more new homeowners to the city fringes where more land is available for building. Construction companies were yesterday predicting a surge in activity levels.

The chief executive of Generation Homes, Kevin Atkinson, predicted his firm would build an extra 50 houses, worth $25 million, over the next year.

"While we support efforts to cool the housing market, the regulations as previously drafted definitely put a squeeze on new house construction," he said.

"We estimate that the number of inquiries we received had fallen by 17 per cent since the LVR restrictions were introduced."

Grant Porteous, managing director of Deacon Holdings, the master franchise holder for the 27 G.J. Gardner building franchises, also predicted a reversal of falling inquiry levels.

He said he had not foreseen the turnaround but knew of building industry representatives meeting Finance Minister Bill English to hammer out issues.

"They said they were looking for a solution. It's fantastic. It will allow new houses to be built, which will help with the whole demand curve." His franchisees would build more than 950 houses in the March year, he predicted.

Registered Master Builders lobbied for an exemption to the loan restrictions which took effect from October 1. Chief executive Warwick Quinn said 22,000 new houses could now be built over the next year.

Jennian homes director Richard Carver said new homes should have always been exempted from the LVR loan restructions.

"Without today's action, up to 30 per cent of new building inquiry was being negatively impacted by the new restrictions.

"The actions from the Reserve Bank go a long way to reversing the inability for young New Zealanders to realise the great Kiwi dream of owning their own home."

Ian Webb, who started Albany-based new house financier NewBuild in 1999, said the Reserve Bank had acted in the country's interests because the policy would increase the supply of new houses.